For most business owners, cash flowing in always lags behind cash flowing out. For optometry practices, that rule is further complicated by discounted vision plans, which force financial income to stagnate, raise practice expenses and competition from price-slashing discounters, and cause patients to shop for eye care by price alone. Such factors can add up to one big cash flow headache, with no relief in sight.

Cash flow difficulties are common occurrences in all professional spheres. These difficulties can lead to a great deal of stress as you try to meet a payroll, pay the rent, keep the lights on, and continue to deliver top-notch patient care.

Cash Flow Problem Signals

Often, a practice may suffer from a combination of factors, leading to a cash flow puzzle that can be difficult to solve. Step back. Take a detached, analytical view of your practice, and you may begin to see the symptoms of cash flow problems.

These symptoms could include one or more of the following:

Fewer new patients this year than last year.

Fewer returning patients this year than last year.

Open appointment slots and quiet phones.

A rising accounts receivable balance and non-paying accounts.

Struggling to find enough cash to cover payroll.

Lack of resources to replace equipment or purchase supplies.

Late payments on loans.

Late payments to vendors.

Increasing number of incoming collection calls.

Maxed-out business credit lines or personal credit cards.
Such constant cash flow headaches can push a practice owner to the edge of despair. The good news: As a practice owner, you actually have more control over your cash flow then you might realize. By understanding what causes cash flow problems, you can take steps to alleviate those causes and actually get ahead of your cash flow, rather than constantly falling behind and struggling to catch up.

The goal of cash flow management is to have incoming cash flow (revenues) arrive in time to cover outgoing cash flow (expenses).

Beyond that, include provisions for future planned expenses (such as purchasing new equipment or hiring additional staff) and build a cash buffer to carry the practice through an economic downturn or unexpected event. Just as the eyes may reveal underlying systemic health issues in the human body, cash flow issues can reveal hidden problems within a professional practice.

Understanding the causes of cash flow problems can help you identify and address underlying weaknesses in your practice. Begin by examining your practice for signs of a cash flow problem. (See Cash Flow Problem Signals.") If you see why the problem is occurring, you can fix it. Cash flow problems occur for the following reasons:

An insufficient level of revenue to support expenses.

Late payments from patients or insurance companies.

Under-pricing of services due to competition or other factors.

Misallocation of resources.

The Basis of Good Cash Flow

The financial aspect of practice management can be a weakness for a practice owner who isnt accustomed to speaking the language of numbers and accounting.

But, the basic record-keeping requirements of any professional practice provide the foundation for improving cash flow. (See Cash Flow Checklist.")

The details of billing patients or paying vendors may provide valuable information about what is happening in your practice. Those numbers, compiled into monthly financial statements, provide rich information about the financial health of your practice.


Cash Flow Checklist

To help diagnose cash flow problems, check off all of the statements that are true. Once youve checked off each statement that applies, look over those that remain. Any statement that you didnt check is an area you could focus on to improve your cash flow.

___I have an accounting system.


___I know my cash burn rate.


___I use that system to invoice patients, pay bills and track the financial health of my practice.


___I am able to speak knowledgeably with accountants and bankers about the numbers side of my practice.


___My patients are billed at the time of exam or delivery of product.


___I am comfortable with the numbers side of my practice.


___I have a careful process for granting credit to my patients.

___I have a cash reserve equal to six months of practice expenses.


___I track the amount of money owed to me by patients.


___I have (and use) a marketing plan for my practice.


___I follow up as soon as a patients bill is overdue.


___I actively market my practice (at all times).


___I know how much credit I can afford to have with my vendors.


___I track my marketing activities to see which are successful.


___I manage my credit relationships with vendors and banks carefully.


___I keep my expenditures in line with my income.


___I use a set budget to control my income and expenses.


___I make decisions based on how they will impact my cash flow.


___I use a cash flow forecast to anticipate the highs and lows in my cash flow.

___I have a trusted team of advisors to help me create a successful practice.


___I know my break-even point and use it to make decisions.

___My cash flow allows me to take a paycheck regularly.


___I dont let the books pile up.

___My cash flow doesnt keep me awake at night.
Source: The Jordan Result,

Develop Strength in Numbers

Developing strength in numbers starts with being comfortable with the financial side of your practice. The most skilled and personable optometrist in the world will never succeed at business without an understanding of the numbers. Practice owners whose businesses have failed often report that they had little understanding of cash flow and finances.

Strength in numbers means having an understanding of items, such as financial statements, break-even points, budgets and cash-flow forecasts. These are incredibly valuable tools that you can use to get ahead of your cash flow and expand your practice. And, best of all, these tools are definitely learnable.

To give yourself an analytical understanding of your practices finances, track some key measurements. For example, how many new patients did you see today? This week? This month? What percentage is that number of your total patients seen? A high percentage of new patients may demonstrate a good return from some marketing activities. Or, it may also indicate that your previous patients are not returning. Conversely, a low percentage of new patients compared to previous patients may indicate that a practice is not growing. A successful, healthy practice needs both new patients and returning patients.

Another part of developing strength in numbers is learning the ins and outs of using financial power tools, such as budgets, forecasts and break-even points, to help steer your practice into smoother cash flow waters. With these tools, you become skilled at looking at your practice as a business with resources to allocate, forecasts of when you may face cash shortfalls, and how to price your services for profit.

Budgets. Budgeting is the most unappreciated aspect of improving cash flow. Somewhere along the way, budgeting seems to have become a chore and a bore. But, on the contrary, budgets are a formidable ally for every business owner. Large businesses have budgets to help them allocate vast resources. Small businesses have budgets to help them allocate scarce resources.

Without a budget, youre allocating your resources arbitrarilynot focusing them in the areas where they are most needed. You dont want to spend more money on magazines and displays for your waiting room than you are spending actually getting new patients into that waiting room. A great starting point for developing a budget is to list monthly, quarterly and yearly practice expenses. When these expenses are spelled out in black and white and compared against current income levels, it often brings to light an ugly deficit. The good news: Armed with that information, you can begin to understand how much you need to grow your practice in order to meet the current level of expenses (or how much you need to cut your expenses to bring them in line with current income).

Forecasts. Another critical tool for improving cash flow is a cash flow forecast. Such a forecast looks at whats on the horizon for incoming and outgoing cash.
This way, you know well in advance when your insurance payment is due. You know before payday whether there will be enough cash in the bank account. It prevents financial fire drills, those moments when you suddenly realize that you dont have the cash you need to pay that bill or to pay down that debt.

Cash flow forecasts help you plan ahead and give you peace of mind. A cash flow forecast can be easily created using a free spreadsheet template like the one found in the Cash Flow Tools at Once youve plugged in your own numbers, the forecast can be kept up to date by entering new information once a week.

Break-even points. Your break-even point is that delightful point during the year when you have met your annual expenses and can actually start making a profityour revenues begin to exceed your expenses. Knowing your break-even point is critical. Often, when a practice owner first calculates the break-even point, its a bit of a shock. You may discover that the only way youll ever make a profit is if you add four more months to the year. The good news about breaking even: Once you know the number, you can begin to use it to make the changes in your practice that need to be made.

You can determine your break-even point quickly by taking the total expense figure from your budget or from last years tax return. That total expense number is equal to the total income your practice needs to break even. You can also find break-even point calculators on the internet to help determine your break-even point. A link to one of those calculators can be found in the Cash Flow Tools section at

Your break-even point also serves as a decision-making tool. For example, if youre trying to decide whether its time to add a staff member to your practice, you can use the break-even point to see how much youll have to increase revenues to break even on the new hire. The break-even point is also
a great tool when considering expanding or moving your practice, or adding additional equipment.

Becoming more comfortable with the financial side of your practice will help you to better understand the underlying issues that may be creating cash flow problems. Then, you can begin to work on the four problem areas from which those problems arise, namely insufficient revenue, late payments, under-priced goods or services and misallocation of resources.


Insufficient Revenue

A level of revenue insufficient to support expenses is a sure sign of the need for additional practice development. This is a common problem for practices at all stages of developmentnew practices, practices faced with increased competition and well-established practices.

You have two options when it comes to increasing revenues:

Finding new patients.

Getting repeat business from existing patients.

The best method for either approach is to develop and implement a marketing plan that positions your practice as the solution to a patients eye-care needs. That marketing plan must include the answers to the following questions:

How do you reach new patients or reconnect with inactive patients?

What approach will you use to entice them through your doorway?

Are there other markets you can tap into that you havent tapped into previously?

To attract new patients, youll need to lay the foundation for a relationship with them. People like doing business with people they know, like and trustparticularly when it comes to one-on-one personal services like eye care. The roots of this relationship may be established by referrals from happy patients, referrals from other trusted professionals, or from an informal meeting, such as at a parent-teacher organization meeting or community service project.

Contact patients who have slipped away and remind them they are due for an eye exam. Or, inform them of a new recommendation regarding sunglasses, contact lenses or the importance of yearly eye exams.

Generating additional income from existing patients comes from the building of relationships as well. For patients who see vision care as a nuisance or an annoying expense, establishing a closer relationship can improve their rate of return visits. One proven method for developing a closer relationship is a regular monthly newsletter sent to all current and past patients.

A patient is more likely to return if he or she knows you and feels comfortable with you. Without that relationship, the patient may feel that one eye doctor is as good as the next. And, under that assumption, the patients only distinguishing factor is pricethe lower, the better. A sturdy relationship gives patients parameters other than price to base their vision care choices in.


Late Payments

Its been said that on the eighth day, God created business, and on the ninth day, the first late-paying customer was born. This certainly holds true for optometryespecially when it comes to insurance companies. Hassles with insurance providers can take up a huge amount of your time and energy. While youre waiting for third-party payments or patient payments, your own cash flow is bound to take a hit.

You can reduce the force of that hit by using a couple of simple (but effective) techniques. Offering patients a payment plan service, such as CareCredit (, reduces hassles involving private pay patients, and also gives them a terrific payment option. If you offer your own payment plan to your patients, set it up so that you automatically charge the payment to their credit card on a set day of the month. If you are dealing with a third-party payer, keep close track of your receivables, and phone often. The key is to be consistent and persistentkeep your receivables on a short leash!


Under-Priced Services

With increased competition between private and corporate optometry practices, it may seem as though the only thing you can do is try to compete on price. But, successfully marketing your practice and establishing relationships with your patients make price less relevant in the eyes of your patients. Also, these factors appeal more to private-pay patients; they wont pay for generic eye care. So, personal service and top-notch care are major weapons in your arsenal. Add an occasional thank you note or a holiday greeting, and you strongly define the differences between your practice and that other optometrist down the street.


Misallocation of Resources

You make decisions about the allocation of resources every day. Will you answer the phone yourself, or will you hire an assistant? Will you purchase new equipment or pay down college loans? Will you try to see more patients or spend more time with your family? In your practice, that allocation of resources includes not only how you spend your cash, but also how you spend your time.

For example, to save expenses, practice owners may sometimes try to take on other jobs outside the practice. But, you simply cant make $100,000 a year earning $12 per hour.

If you arent spending your time seeing patients or developing your practice, youre not allocating your most critical resource in a way that will best improve cash flow. Saving on bookkeeping or janitorial fees by doing the work yourself is not the best use of your time. If your practice isnt ready to support an employee for administrative or other work, consider hiring subcontractors as needed.


As your financial skills increase, your ability to diagnose and solve the underlying problems in your practice will also improve. By understanding the causes of cash flow problems, youll be better able to prevent them as you move your practice forward. That bodes well for a rewarding, successful practicefor both you and your patients.
Ms. Jordan is a veteran small business owner, accountant and consultant. She is the author of Stop the Cash Flow Roller Coaster, I Want to Get Off! and Strength in Numbers. She is the owner of The Jordan Result, which specializes in developing real-world, practical resources for small business owners to improve cash flow and business operations. (For additional cash flow tools, go to

Vol. No: 145:01Issue: 1/15/2008